Measuring Well-Being

GDP and Happiness: A Picture Incomplete?

The Gross Domestic Product (GDP) is the total monetary/market value of all the finished goods and services produced within a country in a time-period, and has been the standardized measure of a country’s economic wellbeing (Investopedia, 2020). It can be measured with three equivalent methods; expenditure, income, or production. Components included are government outlays, investments, additions to private inventories, consumption, and the foreign balance of payments (Investopedia, 2020)

Economic activities included in the GDP include jobs which produce goods and services sold, or their monetary equivalent. (Brown, 2017) The GDP does many things well; economists study its intricate detail on the product side of the economy (Fixler and Grimm, 2008), and its overall perspective on employment, disposable incomes, and changing living standards. (Kurtzleben, 2014)

However, the GDP fails to account for actual quality of life and income inequality. A prime example is Hurricane Katrina, which drastically reduced victims’ living standards, but also contributed US$160 billion to the US GDP via insurance payouts and relief programs (Brown, 2017), a glaring example of an inadequate metric while thousands tried to return to normalcy.

Moreover, the GDP also ignores environmental pollution, time spent on leisure, home-produced services, and income distribution. Tackling them in turn, the GDP does not account for environmental costs when factories begin polluting their surroundings; only counting the value generated instead. Had this been accounted, the GDP would have potentially fallen (Brown, 2017). This clearly contradicts the Buddhist Economics principle of Interdependence, which states that we cannot just continue damaging the environment without taking steps to conserve it.

Secondly, leisure; the GDP metric only counts every hour of labour spent on actively producing goods and services; it does not count other activities which helps individuals fully enjoy life. Any time spent on leisure, such as enjoying family time or hobbies does not factor into the calculation, even though these nourishing activities contribute to people’s high work productivity. Recreation and leisure certainly play a conducive role in the current GDP, hence it should be counted. If leisure were factored into the GDP, it is my belief that it would raise it.

Home-produced activities and inequality are also ignored, with the former causing debates regarding feminism. For decades since the GDP has been introduced, the housework that women do, like childcare and cooking, have gone unaccounted for. However, people hired for these same tasks would have had their labour counted in the GDP. This shows that the GDP is still old-fashioned in some sociological aspects, and needs updating. When GDP rises, it also does not account for how this is divided, as inequality can rise as money is disproportionately distributed to the wealthy. Indicators such as the National Happiness Index and UN Sustainable Development Goals make better strides in achieving this.

How to measure well-being

As has been established, GDP, the usual measure for standard of living, is an insufficient measure. The question then is how should we measure it? Firstly, for poor countries, objective measures of consumption and basic capabilities are more useful to gauging the standard of living than in rich ones, where most people’s basic needs are met, while for richer countries, subjective measures of happiness can be more useful. Because of this, a good measure of well-being would weigh factors differently depending on the wealth of the nation. It would also attempt to measure this in absolute terms and not relative to other countries, so that the well-being of nations and their changes can be compared over time.

Having established that, what factors should be taken into consideration? One factor is environmental sustainability and degradation. Economies that fail to preserve natural capital and which develop in unsustainable ways, or which create pollution that harms the health of their citizens, should have that subtracted from their economic growth, while those that develop sustainably and use greener alternatives should have that added.

Aside from that, factors measuring the physical well-being of people should be incorporated, such as measuring life expectancy and access to food, water, and other basic needs, though this should be weighed more heavily for poorer countries. By taking this into account, we can take into account the health and longevity of individuals, particularly important for those at the bottom.

Additionally, the subjective happiness of individuals should be taken into account, as well as its distribution. Factors like perceived happiness, social relations, feelings of fulfillment, and the daily activities that create a meaningful life should all be considered in well-being, especially for richer countries in which most people’s basic needs are met.

In terms of a single metric for simplicity’s sake, one akin to the Happy Planet Index, which attempts to take into account a nation’s health, happiness, sustainability, and inequality in one number, would be a useful way to quickly gauge the level of these both in absolute terms and relative to other countries. However, a lower score could be due to unsustainable environmental practices, low happiness levels, or low quality of life. In order to understand how countries are doing, a single metric of this sort, along with a dashboard approach breaking up its components, their distribution, and with added metrics could be a good way for people to be able to, at a glance or more in-depth, judge the well-being of a nation.

What Data is Available to Measure Well-being?

GDP is an inefficient measure of well-being, therefore we have proposed our own metric, composed of a single aggregated metric and a dashboard of indicators. We have established that the factors we prioritize in our metric to measure economic well-being are environmental sustainability and degradation, physical well-being, and the subjective happiness of individuals. Furthermore, we sought to at once aggregate these factors into a single metric, much like the Happy Planet Index. Then, we planned to have a dashboard of indicators composed of variables and their distribution among the population of each specified country.

At this point, any reader may be prompted to ask, ‘what data is available to create these measures of economic welfare?’ To measure ecological resource use and resource capacity, we will use National Footprint and Biocapacity Accounts (NFAs), which are based on UN affiliated data sets. To calculate the ecological footprint of consumption, we add the ecological footprint of production and the net ecological footprint of (international) trade. We subtract this in our aggregate single metric, and indicate this value on our dashboard.

Another indicator, physical wellbeing, will be composed of metrics of health, housing, and cost of living. Health will be measured by aggregating values of self-reported health, provided by national health surveys, which have been found to be good indicators of future health care use, and life expectancy, based on data collected by the UN. Housing will be measured by OECD Accounts data on rooms per person and dwellings with basic facilities, as studies have shown that overcrowded housing has detrimental effects on physical and mental well-being, and dense living conditions usually indicate inadequate water and sewage supply. Income or household’s economic resources, will be measured by aggregating household net wealth with household net adjusted disposable income.

The subjective happiness of individuals, as previously stated, will be measured by aggregating factors of perceived happiness, social relations, feelings of fulfillment, and the daily activities that create a meaningful life. Perceived happiness and feelings of fulfillment will be measured using existing happiness scores based on data collected for the Gallup World Poll. We will need to do additional surveys in each country to collect data for individuals’ social relations and daily activities that make a meaningful life. Buddhist economics considers the happiness of all individuals, therefore adjusting for the inequality of happiness must be included in calculations of well-being, by comparing the scores of least happy individuals (bottom 10%) with the most happy individuals (top 10%).

Team members: Claudio, Irene, and Samiha

Works Cited

Brown, Clair. BUDDHIST ECONOMICS: An Enlightened Approach To The Dismal Science. BLOOMSBURY, 2018.

Fernando, Jason. “Gross Domestic Product (GDP).” Investopedia, Investopedia, 7 Apr. 2021, www.investopedia.com/terms/g/gdp.asp.

Grimm, Bruce, and Bruce Fixler. “The Reliability of the GDP and GDI Estimates.” 2008.

Kurtzleben, Danielle. “Is GDP a Good Indicator of National Well-Being?” Vox, Vox, 20 June 2014, www.vox.com/2014/6/20/17587396/gdp-good-indicator-national-well-being.